There was a good deal of discussion in the media over “unfair” executive compensation, especially in light of the bonuses, golden parachutes, and other forms of remuneration received by CEOs during the bailout.

I have yet to hear much complaint about CEOs being underpaid, though.

But this might change as it becomes apparent that under-compensation of executives might well be a way to wriggle out of higher payroll tax liability. Consider the case of CPA David Watson, who “incurred the wrath of the IRS by only paying himself $24,000 a year and declaring the rest of his take profit.” The Slashdot piece makes the compelling conceptual connection between Watson’s case and that of “the much ballyhooed $1 Executive club like Steve Jobs, Larry Ellison, Sergey Brin, Larry Page, and Eric Schmidt.”

The outcome of this? According to a WSJ overview of the Watson case, “Pay can vary—but it can’t be too low.”

I think if we follow the golden rule we’ll get a golden mean for the golden parachute so that it won’t strangle the golden goose.

  • Mark Sommer

    That’s the problem with the tax system as it is. Only the rich can afford to do such shenanigans, and the middle class gets soaked. We don’t need higher tax rates; we need a fair tax system.

  • Oskari

    Thanks Jordan. This is an issue. I think too often conservatives and classical liberals suppose that criticism of unfair executive compensation is unreasonable socialist propaganda. Not true.

    First, excessive executive compensation is often the result of the biased governance of widely-held companies where shareholders (ultimate “owners” of the company) exercise limited control and top management effectively decides its own remuneration. The fact that shareholders normally “accept” these outcomes is insufficient evidence that the process is justified; trying to fight against it is often counterproductive in practice.

    Second, there is an issue of justice even if property rights and contracts are respected. Property and freedom of contract are important foundations, but not the only requirements of a free and virtuous society. Virtue requires much more.